Delhi HC rules on maintainability of AAR application after receipt of assessment notice

This Tax Alert summarizes a recent ruling of the Delhi High Court (HC) in the case of Hyosung Corporation (Applicant), on the issue of maintainability of applications filed before the Authority for Advance Rulings (AAR) post filing of return of income (ROI) and post receipt of notice from the Tax Authority.

One of the mandatory conditions for admitting the application by the AAR is that the AAR shall not admit an application where the question raised in the application is “already pending” before any Tax Authority.
The HC held that where the Tax Authority had, before the date of filing of the AAR application, already sent a detailed questionnaire to the taxpayer, including on the question raised in the application, it amounts to the question being already pending before the Tax Authority, creating a bar in admitting of the AAR application. However, the mere fact that a standard pre-printed notice to assess the ROI is issued by the Tax Authority before the date of filing of the AAR application would not result in pendency of the question raised in the application before the Tax Authority.
The issue as to when the question raised in the AAR application can be regarded as ”already pending” before the Tax Authority has been a contentious one for quite some time.
Earlier, the SC, in the case of Sin Oceanic Shipping ASA, accepted the taxpayer’s contention that mere filing of ROI before the date of filing of the AAR application cannot be tantamount to pendency of the question before the Tax Authority so as to debar the taxpayer from approaching the AAR.
The present HC ruling further clarifies that mere issuance of a standard notice for assessing the ROI, without stating the specific issues on which information is sought, will also not affect the maintainability of the AAR application. The HC held that proceedings can be considered as pending only if the question raised in the AAR application has been raised in a specific and definite form by the Tax Authority in its notice.
The HC further clarifies that pendency of issue before the Tax Authority is to be seen as on the date of filing of the application before the AAR and not when the application has been taken up for hearing. If the issue becomes the subject matter of assessment or appeal at a subsequent stage, the AAR is not barred from admitting the application